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Case study 56k debt reduced to 25k

Thursday, 2nd July 2009

A husband hid from his family his unsecured debts of £56,000 consisting of loans, credit cards and overdrafts. The debts had arisen over a number of years following the breakdown of his first marriage and the requirement to relocate due to his work. For years he borrowed from one lender to pay another and his liabilities had reached such a level that his monthly payments to creditors far exceeded his income.

The debtor’s second wife was unaware of the extent of his borrowing and they resided together with their three children in a property which had been valued at £195,000. They had a joint repayment mortgage with approximately £153,000 outstanding, this left equity of £42,000.

Creditors were threatening legal action against the individual due to his inability to meet the repayments which naturally made the debtor feel anxious about being declared bankrupt and in so doing potentially lose the family home.

The advice

We suggested that the individual make his wife fully aware of the situation. That done and with the support of his wife and family he was able to raise a lump-sum of circa £25,000 which was offered to the creditors via an Individual Voluntary Arrangement (IVA) in full and final settlement of the debts. There would be no monthly payments to creditors/lenders, just the lump sum payment.

The Outcome

Within 3 months of the individual making contact with us, his proposal for an IVA was accepted which resulted in the creditors receiving approximately 38% of their debt value, and with the debts legally discharged. In any bankruptcy scenario the creditors would only be entitled to his half share of the equity of the property, minus legal and selling costs, because the debts were all in his name.

The creditors received a higher return by accepting the IVA as opposed to what they might have expected to receive in a bankruptcy and the family were able to remain in their family home.

Footnote

With debtwizard.com the fees for preparing a proposal for an IVA are not payable up front, instead they will be withdrawn from the funds paid into the arrangement. IVA's are only suggested as a way forward where it is considered as the most suitable option. Since this case study the IVA Protocol 2014 was launched and has made changes to how the pension and house equity are now dealt with in an IVA. You can read more here IVA Protocol 2014

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